When the history books make their judgments about pre-crisis Wall Street, they'll come down hard on those salaries for twenty-somethings -- at least according to Michael Lewis.
Asked what people will think of when they look back at the mid-2000s financial industry, Lewis answered with a question. "How did you not notice that 24 year-olds were being paid $2 million a year who clearly didn't know anything really?" Lewis, the author famous for The Big Short, asks during a Slate interview.
Lewis chronicled his own time as a green, well-paid bond salesman in his book Liar's Poker, including an anecdote where the famous author got his job at the now-defunct Salomon Brothers in the 1980s essentially by sitting next to the right person at a fancy dinner. But Lewis is far from the only person raking in big bucks with little experience.
In the lead up to the financial crisis, Wall Street workers were pulling in huge paychecks and bonuses -- including those fresh out of college with little experience. In 2006, a twenty-something analyst could home a base salary of $130,000 with a $250,000 bonus at Merrill Lynch, according to The New York Times. Graduates of the nation's best colleges rushed to Wall Street with promises of huge paychecks that would allow them to spend hundreds of dollars on dinners and golf outings. Merrill Lynch was sold to Bank of America during the height of the financial crisis.
Even after the collapse, young financial industry workers are still raking in the big bucks. Hans Kullberg, a 27 year-old trader, told Bloomberg earlier this week that he makes $150,000 per year -- though he's had to cut back on his formerly lavish travel habits in recent months as cuts to pay and bonuses have rocked the industry this year.
But paying baby-faced traders huge salaries is only one of many problems that lead to the financial meltdown, Lewis told Slate, citing the "obliviousness to the conflict of interest at the heart of the Wall Street firms.”
"Once they're gambling with their own money in the same securities they're advising you to buy and sell, there's this huge conflict of interest," he told Slate. "Eventually what is going to happen is what did happen: They're going to design securities to fail, sell them to you and take the other side of the trade."
In the wake of the financial crisis, a Senate report stated one such conflict of interest. Goldman Sachs, the report alleged, sold its clients products the company itself knew to be junk, then bet against said products.
Still, the battle to stop firms from trading with their own money is hitting some road blocks. The Volcker Rule -- a controversial provision of the 2010 financial reform regulation that aims to curb banks from using their own money for trades -- will likely miss its July deadline for implementation.
MICHAEL LEWIS: Wall Street Firms Have A Simple Decision To Make About Who They Are
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Posted: 03/01/12 02:17 PM ET | Updated: 03/01/12 02:25 PM ET